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Fitbit Stock Has a Lot to Prove This Week

Analysts see another loss and declining revenue for the eighth quarter in a row when Fitbit reports on Wednesday afternoon. The key to wooing investors again is not stretching that losing streak to nine quarters.

Quarterly reports are the ultimate fitness trackers, and for Fitbit(NYSE:FIT) that milestone-mapping moment will come later this week when it reports its third-quarter results. The leading maker of fitness bracelets has fallen on hard times lately, and its next best chance of turning things around will come when it offers up fresh financials shortly after Wednesday's market close.

It probably won't be pretty. Fitbit is coming off of seven consecutive quarters of year-over-year revenue declines. It has struggled with profitability, and its stock has taken a beating. Fitbit shares are falling sharply for the third straight year, having surrendered 92% of their value since peaking shortly after the company's 2015 IPO.

Image source: Fitbit.

Slowing down

There's a lot of pessimism baked into this quarterly report. The stock is hitting all-time lows again this week. This is the kind of discounting that could result in a healthy bounce in Thursday's trading if it's even a decent report, and there are some signs of life on that front.

Wall Street isn't holding out for much. Analysts see revenue clocking in at $381.2 million -- in the middle of Fitbit's own forecast of $370 million to $390 million -- a 3% slide off of last year's third-quarter results. The modest year-over-year decline seems encouraging on the surface. It would be just the second time over the past two years that Fitbit doesn't serve up a double-digit percentage drop on the top line. Bulls will argue that this also gives Fitbit enough wiggle room to surprise the market with an actual uptick in revenue, but it bears pointing out that even the most upbeat of the 10 major analysts modeling Fitbit's financial performance sees a slight decline in revenue for the quarter.

The number of devices sold will decrease by more than the top-line dip. Fitbit is selling a lot of smartwatches these days, and these multifunctional timekeepers cost a bit more than its flagship fitness bracelets. Fitbit checked in with a 15% decline in revenue last time out despite seeing the device tally plunge by 21%. It will sell more smartwatches than it did a year earlier, but not enough to offset the sharp drop of dedicated activity-monitoring bracelets. We should also once again see the domestic market hold up better than its international operations, where smartwatches don't have the same appeal.

The bottom line may also prove to be problematic. Analysts see an adjusted loss of $0.01 a share, in line with the prior year's deficit. Red ink isn't a deal breaker, and it's what Fitbit has done over the past two years outside of the seasonally potent holiday-containing fourth quarter. There's always a chance that Fitbit breaks into profitability -- on an adjusted basis but certainly not on a reported basis -- but investor attention will gravitate to the meandering gadgetry maker's guidance.

The fourth quarter is the money quarter for Fitbit. It accounted for 35% of all of last year's revenue, and as much as 38% of its top-line results in 2015. A weak third quarter will be more than offset by strong guidance for the fourth quarter, but not the other way around. In short, Fitbit's rearview mirror may be foggy, but the front-facing windshield needs to be sparkling clean with a clear view of the road ahead.

Author

Rick has been writing for Motley Fool since 1995 where he's a Consumer and Tech Stocks Specialist. Yes, that's a long time with more than 20,000 bylines over those 22 years. He's been an analyst for Motley Fool Rule Breakers and a portfolio lead analyst for Motley Fool Supernova since each newsletter service's inception. He earned his BBA and MBA from the University of Miami, and he splits his time living in Miami, Florida and Celebration, Florida.
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